Organic Foods

Organic Foods Grow In Popularity

Organic foods was one of the fastest growing segments of the U.S. food industry through the 1990's. Over the past 10 years, retail sales of organic products in the U.S. have increased by an average of 23 % per annum. Indeed, there is evidence that sales growth is accelerating, with average annual growth over the past 3 years estimated at 25% p.a. (Source: NMI/Organic Trade Association) By 2000, organic food retail sales through all outlets in the U.S. were estimated at $7.8 billion. Industry analysts forecast the sector to be worth $ 20 billion by 2005, assuming a conservative annual growth rate of of 20%, as illustrated in the chart.

Initial market growth in the U.S. organic sector was prompted by the increased numbers, size and product range of natural food stores during the early 1990's. At the time, these outlets dominated the market, with farmers markets providing an additional outlet for small-scale and local organic producers. As in the UK, the number of farmers' markets in the United States has grown through the 1990's. Numbers increased from an estimated 1,755 markets in 1994, to 2,863 in 2000. Conventional supermarkets and mainstream stores began integrating a wider selection of organic products in the late 1990's and now account for 49% of organic retail sales. Market share of natural food stores has diminished accordingly to 48%. The remaining 3% of U.S. organic food sales occur through farmers markets and consumer subscription arrangements. Produce, dairy and grain products opened the doors for organic products in the U.S. and although there is a move towards convenience and prepared foods, fresh fruits and vegetables remain the top selling category of organically grown foods Currently, fresh fruit and vegetables account for just over 40% of organic food sales. However, frozen products, beverages, confectionery and ready-to-eat foods are forecast to grow significantly in the future. The market growth already recorded by these categories are indicative of a trend towards value-added and higher margin organic products.

In effect, the structure of the U.S. organic industry is shifting away from entrepreneur-led businesses towards a mass market. Just as conventional supermarkets have muscled in on natural food stores, so large food manufacturers have entered the supply chain, in many cases using brand acquisition to establish a foothold in the organic market. Large companies are arguably more suited to meeting the requirements of the multiple sector and the mass market. But small scale suppliers and manufacturers must not be discounted.

In the evolving U.S. organic market, new consumer and market segments are continually emerging and small scale companies remain amongst the most innovative suppliers to an increasingly diverse market. In the expanding U.S. market, suppliers and retailers are facing up to the challenge of adjusting to domestic and international market growth, and with the market value set to break the $20 billion barrier within the next 5 years, the future looks bright.